Historic blackout reveals India's diesel dependence

Although the unprecedented scale of blackouts across northern India this week won't have an immediate or big impact on import needs, a long-term and continuing rise in India's diesel use is important for the regional trade in refined oil products, and it continues to drive decisions on refinery investment.

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By ERIC YEP and RAKESH SHARMA

When the lights go out in India and diesel generators kick
in to provide backup power to tens of millions, India's use of
diesel as a fuel of last resort, and the country's weight in
the regional market, come into sharp focus.

Although the unprecedented scale of blackouts across northern
India this week won't have an immediate or big impact on import
needs, a long-term and continuing rise in India's diesel use is
important for the regional trade in refined oil products, and
it will continue to influence decisions on pricing and refinery investment.

The demand for diesel, irrespective of seasonal
variations, has been continuously on the increase. There is
more demand because diesel is being consumed more in every
sector, Indian Oil Minister Jaipal Reddy said
Wednesday.

This need coincides with an increasing Asian diesel supply
deficit and a growing gasoline surplus, which is expected to
prompt refiners in emerging Asian economies to adjust their
output levels of the two fuels, Wood Mackenzie energy analyst
Sushant Gupta said in a report Thursday.

While Indian state refiners diesel
deficits continue to be the largest in the region, China's
strong demand growth becomes the main driver of diesel trade
flows in the region by 2015, Mr. Gupta wrote.

Total Asian demand for diesel/gasoil is expected to
grow from 8.65 million barrels per day to 9.78 million barrels
a day from 2012 to 2015, he said.

This week's blackouts in India forced countless shops and
businesses to fall back on diesel-powered generators, causing a
temporary surge in use of the fuel at a time when demand was
already high due to water pumping in the drought-hit in parts
of the country, and government subsidies that keeps domestic
diesel prices low.

Based on 2009 data, when a drought in India pushed up diesel
use, a prolonged power shortage for up to a month may result in
diesel demand growing by 2.25-3 million bbl/month over normal
demand, a Singapore-based analyst said.

However, Indian oil companies are confident that they won't
need to resort to additional diesel imports. India is a net
exporter, as private refiners Reliance Industries and Essar Oil
typically sell their output abroad while state-run companies
sell into the subsidized domestic market.

We are seeing a surge in demand but we are not
importing. We are meeting additional demand through supply from
our Bina refinery, R.K. Singh, chairman
of Bharat Petroleum, said.

Even so, there are some shortages in parts of India due to
bottlenecks in getting fuel moved to the most-needy areas.

Indias diesel use rose 13.7% on year in June and a
"dieselization of the economy" is becoming more pronounced as
it is substituting not only fuel oil and gasoline, but also
natural gas, the government said in a recent report.

India has enough refinery capacity to meet domestic needs,
although it relies on imports to meet around three-fourths of
the crude-oil it uses.

India only imports diesel when there is a shortfall
such as during refinery turnarounds, of about 450,000-1.13
million barrels a month depending on the situation, a
Singapore-based trader said.

However, the ability of India's private refiners to divert
exports to the local market is limited by tax constraints, a
different product slate and term commitments to foreign
customers.

Reliance Industries, India's largest refiner with a total
capacity of 1.24 million bpd, is a key exporter with the
capacity to export about 7.5 million bbl/month of diesel from
its two Jamnagar refineries.

One of these enjoys tax concessions, which prohibit the sale
of its output in the home market. But Reliance is understood to
have already diverted output from its domestic refinery into the local market,
seeking to benefit from the summer demand rise.

Dow Jones Newswires

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For sure an eye opener not only for Indian Govt. but rest of the world depending on such arrangements.There should be a balance with respect to importing diesel and policies should play the role. One cannot overcome govt interest over national interest and this can only be controlled by implementing flawless policies / laws.In the name of subsidization, govt has had been playing with national interest and displaying India, a fast paced global market can be seen with this recent distress situation. On serious note, Govt should develop strategy which is opaque and extensive gap risk assessment is necessitated in order to to redefine / refine current policies followed by strict implementation.Thanks

binodkumar tibarewala08.03.2012

these occurences are eye openers for the economy as well as govt of india.it requires a well balanced import mechanism by private importers.we should hv national interest first before our eyes and consideration.todays razor thin setups by psu oil companies is fat bellied and is expense oriented.it needs to be competative and side by side hv competancy to compete.curbing consumption by measures hv been a total failure so far.apm dismantling has been partial.petrofed activities are off the mark so also plac the new avatar of occ.govt of india must restrict duty and normalise ogl imports by which liquid storage facilities can be created.country remaining dark on one side and country not hving storage for all kinds of liquid and gaseous products is the other side;requires serious notes and corrections.thanks/regards...b.k.tibarewala